It’s been one heck of a 30 years in Retail

R5 Capital

Scott Mushkin argues that the era of (over) consumerism of "stuff" is waning, with major implications for the retail sector. Spurred by political rhetoric, tariff policies and reshoring efforts, he sees the deflationary tailwind of globalisation unwinding. He also cites changing attitudes, particularly among younger shoppers, embracing second-hand goods over big-box retailers, and how uniquely American it is to have so many physical goods that 80% of all self-storage units are in the US! While this signals headwinds for the majority of retailers, Scott sees upside in the “Make America Healthy Again” movement, underpinning his bullish view on Sprouts Farmers Market, United Natural Foods and Natural Grocers.

- 30 May, 2025

Texas Roadhouse (TXRH)

Consumer Discretionary

Quo Vadis Capital

John Zolidis updates his best Long and Short ideas in Retail and Restaurants to start Q2. This follows a successful first quarter, where his average Short fell 11%, while his average Long was flat. Both compared favourably to his universe, which was down 6%, on average. The key change this quarter sees John turn bearish on TXRH as the business decelerates, margins inflect negatively and consensus forecasts appear too high. Compounding matters, the shares also trade at a premium to historical levels. Additional Short ideas include Cava, Dollarama and Tractor Supply, while on the Long side, he continues to be bullish on names such as Ollie's Bargain Outlet, Sprouts Farmers Market and Walmart.

- 18 April, 2025

Which unit growth stories can be bought at a discount?

Consumer Discretionary / Staples

Quo Vadis Capital

John Zolidis reviewed 18 unit growth stories in the consumer space, breaking out the value of the existing business from the implied value of the growth option. He then calculated the value of future unit growth using a store level DCF. He compared the implied value of the growth option in the first exercise to expected value creation from store growth in the second. From this John solved for where the market was paying the largest premium to the value of future growth and where growth could be purchased at a discount. The most interesting names on the long side were Academy Sports & Outdoors, Luckin Coffee and Yum China. Sprouts Farmers Market still looks very cheap even after +50% move YTD. Investors are paying the biggest premium for Dollarama, Chipotle and Dollar Tree.

- 22 December, 2023

Sprouts Farmers Market (SFM)

Consumer Staples

Quo Vadis Capital

What really jumps out here is the disconnect between results, guidance and how analysts are modelling the company. 1) Consensus EPS for 2024 is $2.78, below revised guidance for 2023 of $2.77-$2.81. 2) The Street is modelling EBIT margins down every year going forward. 3) Analysts are modelling ~2% annual comps going forward despite the benefit of more immature stores entering the base and compared to the 3.9% comp produced in 3Q23 on top of a 2.4% increase last year. John Zolidis wonders if analysts have any credibility here. SFM has beaten estimates for 17 consecutive quarters, the stock is up over 30% YTD and zero analysts are recommending it.

- 10 November, 2023

Sprouts Farmers Market (SFM)

Consumer Staples

Quo Vadis Capital

SFM has now exceeded analyst estimates for 15 consecutive quarters with the average EPS beat of $0.11 representing ~30% upside. The stock trades at less than half the multiples the market is granting investment-banking darling Grocery Outlet even though SFM boasts dramatically better margins, returns and FCF with an identical unit growth rate. John Zolidis estimates that the average store generates over $2.5m in cash p.a. As the store base grows, so will earnings and cash flow and he believes this will occur at rate well above what is currently discounted in the shares and bearish expectations. 17 analysts cover SFM, yet only 1 has a Buy rating vs. 6 Sell ratings. Short interest is 16%.

- 12 May, 2023

Sprouts Farmers Market (SFM)

Consumer Staples

Quo Vadis Capital

38% of sell-side analysts have the stock as a Sell. The short interest is 15%. Yet, the company keeps beating estimates (now nine quarters in a row). Analysts wrongly believe SFM is a story about price and the company will have to give-in to using margin-eroding promotions to drive comps. In reality, SFM is a merchandising story. The concept works by having a differentiated assortment and attracting customers looking for a different shopping experience. Under new management traffic is improving for the first time in years. New units are going to be higher ROIC. The company bought back 7% of shares last year. Stock trades at 12x P/E.

- 04 March, 2022